What is commercial property insurance?
Commercial property insurance, or business property insurance, is a policy that protects your business or commercial assets. Commercial property insurance can pay to repair or replace stolen, lost, or damaged business property including buildings and stock. It covers your business’s physical location, equipment, and supplies.
If you are a business owner looking for additional protection for your assets, it’s important to understand the different types of property insurance and to find a policy that is right for your size of business and industry.
What does business property insurance cover?
Investing in commercial property insurance is important to protect your most valuable business assets. Your policy may cover many different types of structures and property, including:
- Your business’ building
- Furniture and decor
- Limited coverage for employee personal property on site
- Loss of income as a result of a property loss
Why should I get commercial property insurance?
Many business owners choose to protect their business and assets in different ways. Investing in a security system or fire detection system is common, but what about after there’s been a fire or break-in? Commercial property insurance is one way to protect and secure your business’ future after an event that could otherwise cause financial ruin.
Commercial property insurance is not mandatory. However, it is common for banks to require that you have insurance on any property that may be considered collateral for a loan or mortgage. When this happens, getting your own independent policy is far more cost effective than allowing the bank to find insurance on your property on your behalf.
Who needs business property insurance?
If you are a business owner who has a physical location of business, supplies, or other assets that cost money, you could benefit from business property insurance. There are many different types of businesses with varying levels of coverage needs. You may benefit from a commercial property insurance policy if you:
- Own or rent a building, store, or office
- Own or rent equipment and/or tools
- Have products or inventory
- Have property of others at your business
- You carry any loans or bank interest in your property
Calculate the right amount of commercial property
Whether you’re looking at insurance for your large corporation or small business property insurance, it’s essential that you accurately evaluate the amount of business property insurance needed to adequately cover your business.
Renting vs. Owning
If you rent your business’ property or building, you may need commercial property insurance. Some lease agreements could require you to carry insurance on the building you are renting even if you don’t own it. If you make any updates or improvements to your space, it is also important to protect the money you put into upgrades and you can insure just your investment into a rental building. It is important to review your lease with your insurance professional to make sure you are providing the proper amount of insurance.
If you own the building and have used a bank to secure the mortgage, they are going to require that you carry insurance at least up to the full value of the loan. It is always important to remember that the value of replacing a building does not always equal the value of the loan but insurance is based on the value of the building and not what you owe.
Your insurance policy would also be able to cover your liability should your business cause damage to the rental property.
Replacement Cost vs. Actual Cash Value
It’s important to understand that your commercial insurance policy may reimburse you for damages based on two different calculations. Insurance policies can be set up to provide coverage for either “replacement cost” or “actual cash value”. While these may seem similar, there is a big difference between the two.
Replacement cost is the cost to replace a building/damaged property with all new construction or property. This may include demolition, surveying, and rebuilding.
Actual cash value (ACV) is the replacement value minus depreciation based on the item’s useful life, also referred to as depreciated cost value. If your building or property is older and you do not wish to replace your building or property in the event of a loss, this can be a good cost effective alternative to receive some money in the event of a loss.
When thinking about how much property insurance you should purchase, one of the most important things to keep in mind so there are no surprises at claim time, is the concept of co-insurance. In the simplest terms, it is the amount of insurance you should have over the amount of insurance you did have at the time of a loss. Insurance companies want to be sure you are properly covered and that people are not intentionally trying to “under-insure” their property. To discourage people from this practice, most insurance policies have a co-insurance clause. Typically your policy will have 80% or 90% co-insurance. This means, you would need to choose an amount of insurance that is at least 80% of the true replacement cost of your property to make sure there is no reduction in payment. If you do not, they will reduce your payout at the time of a claim by whatever percent the property wasn’t properly valued and insured.
For example, if your estimate for the replacement cost of your building is $1,000,000, that is the insurance limit you choose. In this example, the policy has an 80% co-insurance clause. At the time of a total loss claim, the insurance company will value your building. They are looking to make sure that the insurance policy has at least 80% of the true value of the building. So if the company values your total loss replacement cost at $1,100,000. If we take what the policy did have, $1,000,000, over what the true replacement cost was or what the insurance limit “should” have been, $1,100,000 that gives us 1,000,000/1,100,000= 90%. That is within 80% so you would be entitled up to your full insurance limit of $1,000,000. In this same example, if the insurance limit was $500,000 at the time of the total loss, the insurance company would look at what the policy had vs what the total loss is; 500,000/1,100,000= 45% which is less than 80% so the total payout would be reduced by 45% to account for only have insurance on 45% of the value of the property. That is why it is critical to review with your insurance agent exactly what you own and the value of that property so there are no surprises if you have to file a claim.
How much does commercial property insurance cost?
Business property insurance varies in cost, but it is surprisingly affordable, especially considering the costs of rebuilding or replacing your assets. Most small businesses pay less than $100/month. Many factors can affect your insurance premiums, and they aren’t as obvious as you’d think. We’ve prepared a non-exhaustive list of criteria that may raise or lower your insurance costs.
- Geography: some locations are more prone to natural disasters, theft, or arson. Also your location will impact how far or close you are to a fire station or hydrant.
- Size of the business’ building: if your business is a large factory you will likely pay more insurance than a small office.
- Safety and security: if you have a security guard, theft-deterrent system, or a comprehensive fire suppression system, you will likely be able to save on your insurance.
- Age/repair of the building: if the building has older components, like outdated wiring or plumbing, it may cost more to insure than a newer, up-to-code building.
- Type of equipment: if your business uses expensive, hard-to-replace equipment, you may pay more for your insurance premiums.
What’s the difference between business property and liability insurance?
There are two common types of business insurance: property and liability. Commercial property insurance covers physical damage to buildings, assets, and supplies belonging to your business whereas commercial liability insurance can help cover legal expenses for certain types of lawsuits or if you cause property damage to someone else’s property that is not in your care, custody and control.
Can I buy business property insurance if I don’t own a building?
Often, if your business’ premise is under a lease, you may be required to have a property policy to protect your space in the event of an adverse event. Think of it more as insuring your space instead of the building itself. If a wall is heavily damaged during your tenancy, it may be advantageous to put the repair through insurance rather than having the landlord expecting you to pay for repairs.
Find the best property insurance for your business
Your business needs to have the appropriate business property insurance coverage in place to recover from an unanticipated accident, catastrophe, or other loss. It is important to work closely with your insurance broker or agent to determine what’s best for your business.
When looking for an insurance company or broker that specializes in business or commercial property insurance, be sure to look for companies that offer no-obligation insurance quotes, like Doyle and Ogden. Finding an insurance company that you feel safe and comfortable with can be challenging, but it is crucial to protect your business and employees.
Whether you’re interested in a commercial property insurance quote to determine your business property insurance cost or adjusting your policy to ensure the right level of protection, Doyle and Ogden insurance is available to help at every step of the way. Contact Doyle and Ogden for your free quote to protect your business and its assets.